Indian onion prices stir up trouble in election year

Source :

Last Updated: Fri, Feb 08, 2013 07:30 hrs

By Rajendra Jadhav

MUMBAI, Feb 8 (Reuters) - Onion prices have climbed sharply
in India following a drought, a worry for the government as it
heads into state elections that have been known to turn on the
cost of the vegetable.

Prices have more than doubled in the last three months and
no respite is in sight. Supplies remain tight as low rainfall
has cut sowing and curtailed growth of individual bulbs.

Indians eat their way through 15 million tonnes of onions a
year, using them as the base for traditional dishes such as
biryani and bhaji and making them a hot political issue and a
kick to inflation when the price rises.

"I don't understand how suddenly prices skyrocket. I have to
buy at whatever price vendors are asking. I can't buy less just
because prices are high," said Pooja Kadakia, 28, a housewife
shopping in central Mumbai.

"Planting is down in all the major producing states. There
is severe water scarcity in Maharashtra, Gujarat and Karnataka,"
Satish Bhonde, a director at the National Horticultural Research
and Development Foundation, told Reuters.

Bhonde predicted a 10 percent drop in production from last
year. India produced a record 17.5 million tonnes in 2011/12.

Relief could come with the new crop in October, but the
government faces 10 state elections this year and needs a good
summer monsoon. National elections are due next year.

The opposition Bharatiya Janta Party (BJP) will be sure to
use rising prices against the Congress party-led government in
the campaigns. In 1998, the BJP suffered heavy losses in a key
state poll, a result widely blamed on high onion prices.

"The recent political history shows onion price rises go
against the ruling party," said Jaidev Dole, an analyst at
Marathwada University in Maharashtra.

"The government is already unpopular ... the onion price
rise may be the last straw that breaks the camel's back."

BATTLING CORRUPTION, INFLATION

The coalition government faced a string of corruption
scandals last year and is battling to get the sluggish economy
back on track while trying to control inflation, with food
prices rising 13 percent year-on-year in December.

"Until the next onion crop arrives, prices will remain high.
It will definitely have an adverse impact on inflation," said
Madan Sabnavis, an economist at CARE Ratings.

The Congress-led state government of Maharashtra, the top
onion producer, is planning to act against hoarding and limit
the amount of stock traders can hold, a state official said.

Traders are talking about a repeat of the 2011 export ban.

"The government can ban exports, start imports through
state-run agencies. These measures can help a bit, but they
can't pull down prices sharply," said a Mumbai-based exporter,
who declined to be identified.

India, a key supplier to Asian and Gulf countries, exported
1.38 million tonnes in the first 10 months of the financial year
from April 1, 2012, up 10.4 percent from a year earlier.

But the government may not have to intervene.

"Already exports are slowing due to higher prices. Pakistan
is offering a steep discount compared to Indian quotes," the
Mumbai exporter said.

What could make a difference would be to improve a creaky
distribution system and storage. Post harvest losses account for
nearly 30 percent for all vegetable production.

"Every year, improper handling and storage leads to large
scale wastage. If we minimise the wastage, we can arrest price
rise," said Bhonde of the Horticultural Foundation.
($1 = 53.2850 Indian rupees)
(Additional reporting by Shamik Paul; Editing by Ron Popeski)